Question

Exercise 19-25 (LO. 5) Quinlan has ample E & P to cover any distributions made during the year. One distribution made to a shareholder consists of a property with an adjusted basis of $150,000 and a fair market value of $90,000 What are the tax consequences of this distribution to Quinlan? If an amount is zero, enter "O" As a result of the distribution, Quinlan Corporation has a realized lossof The shareholder received property with a basis of of which is recognized Feedback Check My Work Although most corporate distributions are cash, a corporation may distribute a property dividend for various reasons. The shareholders could want a particular property that is held by the corporation. Similarly, a corporation with low cash reserves may still want to distribute a dividend to its shareholders

Answer 1

As a result of the distribution. Quinlan Corporation has a realized loss of $60,000 of which $0 is recognized. The shareholder received property with a basis of $90,000. Explanation: When property is distributed to shareholders, the amount of the dividend equals to the fair market value of the property (i.e., $90,000) on the date of the distribution. Thus, the amount of taxable dividend is $90000 (before the dividends received deduction). Calculate amount of net loss as follows: Net loss which shall not be allowed = $150000 - $90000 = $60000 Therefore, as a result of the distribution, Quinlan Corporation has a realized loss of $60000 which it is not allowed to recognize. Adjusted Basis of the property distributed is $90,000.